Brent futures inched higher on Thursday, holding above $115 a barrel, as President Barack Obama's effort to win backing for a military strike against Syria cleared its first hurdle and strong auto sales boosted the demand outlook for oil.
Prices are unlikely to rise much, given expectations for a short, limited strike on Syria, unless the situation gets out of control, and key oil producers in the Middle East get dragged into the conflict.
Gains may also be limited as investors await details on the U.S. Federal Reserve's move to roll back its stimulus, which will weigh on commodities.
Brent crude rose 17 cents to $115.06 by 0630 GMT, after ending down 77 cents. U.S. oil rose 20 cents to $107.43 after settling down $1.31 in the previous session.
"My central view is that Middle East premiums will remain in the market for a while," said Ric Spooner, chief market analyst at CMC Markets. "If you take it that the United States will attack, the key question remains what happens after that? Will it stay limited, or will Syria's neighbours get dragged in?"
While Syria is not a big oil producer, investors have been worried that a strike there by Western forces may disrupt supplies from a region that pumps a third of the world's crude.
Markets are already struggling to cope with a loss of supplies from Libya. Outages in the Middle East and Africahave surpassed 3 million barrels per day, or about 3.5 percent of global demand.
Investors expect the strike to be limited. The Senate Foreign Relations Committee voted in favour of a resolution that sets a 60-day limit on any engagement in Syria, with a possible 30-day extension, and bars the use of U.S. troops for ground combat.
"The oil market is a bit tight anyway, because of disruptions in output from some key countries, and the uncertainty over Syria is just adding to pressure," said a trader at a north Asian refiner.
Oil, particularly the U.S. benchmark, also gained from an industry report showing a steep fall in crude stockpiles in the world's biggest consumer. Crude inventories fell by 4.2 million barrels in the week to Aug. 30 to 362 million, the American Petroleum Institute (API) said, versus expectations for a decrease of 1.3 million.
The U.S. benchmark was also supported on expectations of a revival in demand growth after U.S. automobile sales gained at their fastest pace since October 2007.
Global markets await concrete details of the Fed plan to roll back stimulus. One top Federal Reserve official said he was open-minded about reducing stimulus this month, as investors largely expect the central bank to do, while another policymaker said the bank should actually do more for the economy.
"We may see a few dollars coming off on oil from here, if there is any announcement on the stimulus," Spooner said. "It will weigh on oil as the dollar will strengthen."
Brent may drop to $113.69 a barrel as indicated by its wave pattern and a Fibonacci retracement analysis, while the U.S. benchmark is expected to slide to $105.76, Reuters technical analyst Wang Tao says.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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